Tesco’s profits for the first six months of 2014 have been nearly wiped out by the toxic combination of the recent accounting scandal and slumping sales at its declining UK store empire.

In another dark day for the supermarket giant, the accounting fiasco claimed the scalp of chairman Sir Richard Broadbent and the company said it was withholding million-pound payoffs to its former chief executive Philip Clarke and finance director Laurie McIlwee until an investigation into its mis-stated accounts by the City watchdog was complete.

Pre-tax profits crashed 92% to just £112m as Britain’s biggest retailer revealed the month-long investigation by the accountancy firm Deloitte had found a bigger hole in its books than previously thought. More damagingly, Tesco claimed that the rogue accounting practices – which relate to how the supermarket banks payments from suppliers – dated back at least two years.

Confidence in what was once one of the most respected companies in the FTSE 100 was further rocked by an admission that it could no longer estimate how much profit it would make this financial year, as there were too many uncertainties surrounding its future direction. Its shares slid more than 6% to 171p, wiping another £1bn off the value of the business. Tesco is now worth just half of its value in January.

In the wake of the update, Fitch and Moody’s, the ratings agencies, downgraded the chain’s credit rating to just one notch above junk – which is likely to increase the company’s borrowing costs. Clive Black, retail analyst at City stockbroker Shore Capital, welcomed the chairman’s departure because “a powerhouse of international retailing has been reduced to a rudderless corporate entity” on his watch. Black said the fact that the accounting scandal, first uncovered a month ago, stretches back further than just this year was also a matter of concern.

Tesco is losing shoppers in the face of a fierce price war being waged by rivals and fast growing discount chains Aldi and Lidl. Its like-for-like sales – which exclude gains from new shopfloor space – tumbled 5.5% in the final three months of the period. Profits in the UK more than halved to £499m as falling sales and lower profit margins, on the back of a round of price cuts launched in the face of a mounting supermarket price war.

Chief executive Dave Lewis, who had never worked in the retail business until he joined Tesco in September, said: “I think we’ve got to be a little bit disappointed. Relative to the market, we’ve not been as competitive as I would have liked us to be.”

He suggested that the supermarket had lost touch with its shoppers: “I think at Tesco we lose our way when we don’t let the customer guide us.” Tesco also has substantial problems overseas, with underlying sales falling in eight out of 10 of Tesco’s international markets .

As part of the accounting investigation, Deloitte demanded to see more than 6m documents and has pored over more than 700 supplier invoices to gain a true picture of the retailer’s finances. It has now handed its report to the Financial Conduct Authority. The FCA has the power to prosecute executives who make deliberately or recklessly misleading statements to the stock exchange.

The investigation, prompted by information from a whistleblower, triggered the suspension of eight senior executives, including Chris Bush, the head of the UK food business, and none has yet been reinstated. Clarke remains on the Tesco payroll, being paid his £1.1m salary until January. McIlwee has now left the business and was due his near-£1m golden goodbye this month.

Deloitte’s forensic accountants established that the estimate of first-half profits Tesco gave the City back in August had been artificially inflated by £263m, rather than the £250m originally estimated. The inquiry has focused on the timing of supplier payments linked to in-store promotions that are often arranged months in advance.

In its report, Deloitte said supplier payments had been “pulled forward or deferred” in a manner that was contrary to Tesco’s accounting policies. It also found there had “been similar practices in prior reporting periods” and that the sums “pulled forward grew period by period”.

Some analysts have speculated that increasingly desperate executives were pulling forward payments in order to paint a more flattering picture of the supermarket’s deteriorating finances. Lewis dismissed the idea that fraud was involved in the accounting blunder: “Nobody gained financially as a consequence of the overstatement of performance.”

Lewis said the discovery of the accounting irregularities had been a “body blow”, but the completion of the Deloitte report “drew a line” under the issue from the company’s perspective – although it would support the FCA as it gathered evidence. That freed him to concentrate on his day job of turning around Tesco’s UK chain.

Pre-tax profits were depressed by more than £500m of one-off costs, including those relating to the accounting issue.

Tesco’s finance director, Alan Stewart, who is also new to the job, reassured investors that the company would not need to restate its accounts from previous years and that no rogue accounting practices had been discovered in its mainland European and Asian businesses.

Broadbent, who said he would quit when a replacement was found, has presided over a catalogue of disasters at the retailer, which has issued five profit warnings in the last two years. During that time all the senior executives who were the architects of Tesco’s success during the 90s and noughties, working alongside Sir Terry Leahy, left or were fired. At one point, Clarke was the vast retailing empire’s sole full-time board director. He was finally axed by Broadbent as Tesco’s problems went from bad to worse and Lewis was drafted in from Unilever.

Nonetheless, Broadbent insisted that he had not been forced out: “I didn’t have to go, I’m not being pushed out. I’m going because I choose to go.” The decision reflected “the important principle of accountability”, he added.

The accounting issue aside, Lewis has plenty of other fires to fight. The company is hobbled by £7.5bn of debt, a mushrooming pension deficit and, most pressingly, the collapse in profits in its important home market. The combination means that Lewis is being forced to look at all options to raise cash, and he has embarked on a full review of the £70bn turnover group. It has a large operation in Asia, which would be prized by investors, but also has assets such as Dunnhumby, the data giant behind Clubcard, that it could sell.

The executive refused to rule out a cash call on shareholders, stating “never say never”.

To turn around the Tesco supertanker, Lewis knows he has to lead by example. He has already dispatched 2,500 head office staff to work in its stores for one day a fortnight in the runup to Christmas, and revealed that, when possible, he is forgoing his chauffeur and taking public transport. His thriftiness is in contrast with Clarke, whose largesse saddled the company with a $50m (£31m) Gulfstream G550 corporate jet. Lewis has since put it up for sale.

He promised the company would return to its original ethos of putting the customer first with a drive to improve service and increase the availability of products in store. It will also look to cut costs, some of which may come a rationalisation of its unwieldy 32 offices around the country.

“We’ve been looking at every aspect of cost or investment in our business and saying, ‘How does the customer feel that?’” said Lewis. “I took a decision to get out of corporate aircraft … and you very regularly find me on the train from Cheshunt into London when I’m going to an engagement, because the cost of the ticket is the same as one colleague, for one day, in store. So if I can plan myself a little bit better and I don’t have to do something confidential and I can be on the train, I can put that money into one more colleague in store. And that’s just an insight into the mentality I want us to have.”